Many people who purchase some kind of warranty or insurance are often surprised when they find out that it is not there for them when they need it. Some insurance providers will try to find a way out of paying claims by finding issues in the contract that they think will get them out of an obligation to cover the claim. When this happens, the person who purchased the insurance ends up holding the bag with an uninsured loss. This situation becomes even worse when there is a massive event that could put the insurance company out of business. This is exactly what is going on with business interruption insurance which is refusing to pay COVID-19 claims.

Numerous restaurants and other businesses have filed lawsuits against providers of business interruption insurance for their refusal to cover claims arising from the coronavirus outbreak. There are dozens of such lawsuits that have been filed because numerous insurance providers have all taken the same approach to handling COVID-19 claims. Some plaintiffs are even trying to get the federal court system to consolidate these cases as part of multi-district litigation.
 

Insurers Say That Coronavirus Is Not Covered

There are multiple issues that are at play in these lawsuits. One of the major issues is what constitutes business interruption that would require the insurer to pay the claim. Here, the interruption was a closure of the business that was ordered by civil authorities. Insurers have been arguing that this is not covered by the policy. The insurers claimed that business interruption requires some sort of physical damage to the business as opposed to just a closure.

Major insurance companies have taken this position because they may need to pay out tens of billions of dollars of losses if they decide that the closure is covered. This loss alone could end up putting major insurance underwriters out of business as small businesses have lost hundreds of billions of dollars just over a seven-week span. Even more losses will occur in May and June until the economy is fully re-opened. As such, Hartford and Travelers have announced their intent to deny all of these claims. Numerous other insurers have followed suit.

According to a letter that Travelers has sent out explaining its decision to deny all of these claims, market conditions alone are not enough to become a business interruption. Without physical damage, the insurer says that the losses are caused by general fear of contamination, which is not what the policy was intended to cover.

Some insurers specifically created a virus exclusion from their policies after the SARS outbreak in 2003. However, many insurers did not include this in the current policies that are at issue in the lawsuit. Many plaintiffs who have language excluding viruses claim that the contractual language is weak and does not actually account for a situation like COVID-19.
 

Businesses Thought That the Pandemic Was Considered an Interruption

For many small businesses, they purchases this insurance thinking that it covered all instances in which the business would be interrupted or closed. Now, they are left with staggering losses that insurance is not covering. As a result, scores of businesses each day across the country have had to shut down their doors permanently. Even if these lawsuits are ultimately successful, it will be many years later after the business is closed.

For now, thousands of businesses are contacting lawyers in the hope of filing a lawsuit against the insurance company that they believe failed to cover what the policy required. This could end up being one of the larger lawsuits that result from the COVID-19 crisis with large stakes for all involved.

The case may be an uphill battle for the plaintiffs. Some states have given guidance that backs the insurance companies' point of view. For example, Wisconsin's Office of the Commissioner of Insurance states that there must be physical damage for an interruption. If there is an exclusion, then it may be a matter of what is written in the policy. In addition, the businesses have not had their operations fully halted because they are able to open for carry-out and delivery. While their revenues have certainly suffered, the businesses are not completely closed if they are able to keep their kitchens open and deliver food. What is certain is that this legal issue is just beginning, and this will set valuable precedent should it go to trial.